Note

– Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by

800

-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form

-Q and Article

of Regulation S-

They do

not

include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the

three

and

nine

month periods ended

March 31, 2019

are

not

necessarily indicative of the results that

may

be expected for the fiscal year ending

June 30, 2019.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s

Annual Report on Form

-K for the fiscal year ended

July 1, 2018

The Company’s quarterly results

may

experience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s

second

fiscal quarter, generates nearly

50%

of the Company’s annual revenues, and all of its earnings. Additionally, due to the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter and Administrative Professionals Week, revenues also rise during the Company’s fiscal

third

and

fourth

quarters compared to its fiscal

first

quarter. In fiscal

2018,

Easter was on

April

1st,

which resulted in the shift of Easter-related revenue and EBITDA into the Company’s

third

quarter of fiscal

2018.

The Easter holiday was on

April

21st

2019,

which resulted in the shift of most Easter-related e-commerce and retail revenue and associated EBITDA, from the Company’s

third

quarter, to its

fourth

quarter.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.

A description of our principal revenue generating activities is as follows:

●

E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.

●

Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received.

●

Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically

days from the date control over the product is transferred to the customer.

●

BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result

consideration allocation is necessary across multiple reporting periods. Payment is typically due less than

days from the date the services were performed.

Deferred revenues

Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, but

not

shipped, prior to the end of the fiscal period, as well as for monthly subscription programs, including our Fruit of the Month Club and Celebrations Passport program.

Our total deferred revenue as of

July 1, 2018

was

$13.5

million (included in “Accrued expenses” on our consolidated balance sheets), of which,

$0.9

million and

$13.2

million was recognized as revenue during the

three

and

nine

months ended

March 31, 2019,

respectively. The deferred revenue balance as of

March 31, 2019

was

$23.9

million.

Recently Issued Accounting Pronouncements - Adopted

Revenue from Contracts with Customers.

May 2014,

the FASB issued ASU

No.

2014

09,

“Revenue from Contracts with Customers.” amending revenue recognition guidance (“ASC

606”

) and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company determined that the new standard impacted the following areas related to our e-commerce and retail/franchise revenue streams: the costs of producing and distributing the Company’s catalogs will be expensed upon mailing, instead of being capitalized and amortized in direct proportion to the actual sales; gift card breakage will be recognized over the expected customer redemption period, rather than when redemption is considered remote; e-commerce revenue will be recognized upon shipment, when control of the merchandise transfers to the customer, instead of upon receipt by the customer; initial and other franchise fees will be recognized over the franchise term (or remaining franchise term), rather than upon store opening (or renewal/transfer). The Company adopted this ASU effective

July 2, 2018

for all revenue contracts with our customers using the modified retrospective approach and increased retained earnings by

$0.3

million. The adjustment primarily related to the unredeemed portion of our gift cards (breakage income), which increased retained earnings and reduced accrued expenses by

$1.9

million; partially offset by the change in accounting for the Company’s catalogs, which decreased retained earnings and decreased prepaid expense by

$0.8

million; as well as a deferral of initial franchise fees, which decreased retained earnings and increased accrued expenses by

$0.8

million.

The comparative information presented in this Form

-Q has

not

been restated and continues to be reported under the accounting standards in effect for those periods. The Company does

not

expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing, annual basis. However, the adoption of the new revenue standard is expected to result in quarterly fluctuations, primarily as a result of the change in accounting for catalog costs, as noted above. During the

three

months ended

March 31, 2019,

assuming we had

not

adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately

$1.6

million higher, thereby increasing our Net loss for the period by approximately

$1.0

million (tax effected). During the

nine

months ended

March 31, 2019,

assuming we had

not

adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately

$0.4

million lower, thereby increasing our Net income for the period by approximately

$0.3

million (tax effected). The Company’s contract liabilities related to gift cards (

$1.7

million as of

March 31, 2019)

are

not

considered material for purposes of this disclosure. Refer to Note

– Business Segments for disclosure of disaggregated revenues.

Financial Instruments – Recognition and Measurement.

January 2016,

the FASB issued ASU

No.

2016

01,

"Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," as amended by ASU

No.

2018

03,

“Financial Instruments-Overall: Technical Corrections and Improvements,” issued in

February 2018.

The new guidance requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income (subject to an exemption for investments that have

readily determinable fair values), requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. Upon adoption of the new guidance, we have elected to measure the investments we hold in certain non-marketable equity securities in which we do

not

have a controlling interest or significant influence that have

readily determinable fair values at cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. The Company adopted the guidance prospectively effective

July 2, 2018.

The adoption did

not

have a significant impact on the Company’s consolidated financial position or results of operations.

Statement of Cash Flows.

June 2016,

the FASB issued ASU

2016

15,

“Statement of Cash Flows (Topic

230

), a consensus of the FASB’s Emerging Issues Task Force.” ASU

2016

is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The Company adopted the guidance restrospectively, effective

July 2, 2018.

The adoption did

not

have a significant impact on the Company’s consolidated financial position or results of operations.

Business Combinations – Definition of a Business.

January 2017,

the FASB issued ASU

No.

2017

01,

"Business Combinations (Topic

805

): Clarifying the Definition of a Business (ASU

2017

)," which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. The Company adopted the guidance prospectively, effective

July 2, 2018.

The adoption did

not

have a significant impact on the Company’s consolidated financial position or results of operations.

Nonfinancial Assets – Derecognition.

February 2017,

the FASB issued ASU

No.

2017

05,

“Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.” This update clarifies the scope of accounting for the derecognition or partial sale of nonfinancial assets to exclude all businesses and nonprofit activities. ASU

2017

also provides a definition for in-substance nonfinancial assets and additional guidance on partial sales of nonfinancial assets. The Company adopted the guidance retrospectively, effective

July 2, 2018.

The adoption did

not

have a significant impact on the Company’s consolidated financial position or results of operations.

Stock Compensation – Modification Accounting.

May 2017,

the FASB issued ASU

No.

2017

09,

“Compensation - Stock Compensation (Topic

718

): Scope of Modification Accounting.” This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. An entity would

not

apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The Company adopted the guidance prospectively, to awards modified on or after the adoption date, effective

July 2, 2018.

The adoption did

not

have a significant impact on the Company’s consolidated financial position or results of operations.

Cloud Computing Arrangements – Implementation Costs

. In

August 2018,

the FASB issued ASU

No.

2018

15,

“Intangibles - Goodwill and Other - Internal-Use Software (Subtopic

350

) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is

not

affected by this ASU. The amendments in this Update also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element and also require the entity to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The Company adopted the guidance prospectively, to all implementation costs incurred after the date of adoption, effective

July 2, 2018.

The adoption did

not

have a significant impact on the Company’s consolidated financial position or results of operations.

Recently Issued Accounting Pronouncements

–

Not

Yet Adopted

Leases.

February 2016,

the FASB issued ASU

No.

2016

02,

“Leases (Topic

842

).” Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for the Company’s fiscal year ending

June 28, 2020.

We are currently evaluating the ASU, but expect that it will have a material impact on our consolidated financial statements, primarily the consolidated balance sheets and related disclosures.

Financial Instruments – Measurement of Credit Losses.

June 2016,

the FASB issued ASU

No.

2016

13,

“Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments.” ASU

2016

introduces a new forward-looking “expected loss” approach, to estimate credit losses on most financial assets and certain other instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU

2016

is effective for the Company’s fiscal year ending

July 4, 2021,

and the guidance is to be applied using the modified-retrospective approach. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

Goodwill – Impairment Test

. In

January 2017,

the FASB issued ASU

No.

2017

04,

"Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment," which eliminates step

two

from the goodwill impairment test. Under ASU

2017

04,

an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance is effective for the Company’s fiscal year ending

July 4, 2021,

with early adoption permitted, and should be applied prospectively. We do

not

expect the standard to have a material impact on our consolidated financial statements.

U.S. Tax Reform

December 22, 2017,

the U.S. government enacted significant changes to the U.S. tax law following the passage and signing of the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act revises the future ongoing U.S. corporate income tax by, among other things, lowering U. S. corporate income tax rates from

35%

21%.

Since the Company’s fiscal year ends in

June,

the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately

28%

for fiscal year

2018,

and

21%

for subsequent fiscal years. The Tax Act also eliminated the domestic production activities deduction and introduced limitations on certain business expenses and executive compensation deductions.

Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin

No.

118,

“Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB

118”

), which provided guidance on accounting for the Tax Act’s impact. SAB

118

provided a measurement period, which in

case should extend beyond

one

year from the Tax Act enactment date, during which a company acting in good faith

may

complete the accounting for the impacts of the Tax Act under ASC Topic

740.

In accordance with the expiration of the SAB

118

measurement period, we completed the assessment of the income tax effects of the Tax Act in the

second

quarter of fiscal

2019,

with

adjustments recorded to the provisional amounts.